RIL's grand plans in telecom: Will it win or lose the battle?

Though Reliance Jio continues to sign infrastructure-sharing deals — adopting an asset-light model and ensuring faster service rollout — till date it has not given any time line on how and when these massive investments would start yielding returns.

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Image: RIL has signed many deals to share telecom infra.Photographs: Courtesy, Nokia

RIL's grand plans in telecom: Will it win or lose the battle?

Nilesh Banerjee in a Monday report said,“We estimate its telecom venture to turn Ebitda (earnings before interest, taxes, depreciation and amortisation) break-even in four-five years and remain a drag on returns until then.”

RIL's grand plans in telecom: Will it win or lose the battle?

On Monday, RIL closed flat at Rs 959.45 a share (up 0.07 per cent) on the BSE. It announced its results on Friday after the markets closed for trading. Bankers say RIL has raised Rs 14,000 crore in debt for its telecom venture and is planning to invest another Rs 6,000 crore a year till 2018-19.

RIL's grand plans in telecom: Will it win or lose the battle?

In a post-results briefing on Friday, RIL Chief Financial Officer Alok Agarwal did not comment on when the company was planning to launch telecom services or when it saw the venture breaking even. Insiders, however, said they were targeting a rollout by October this year.

RIL's grand plans in telecom: Will it win or lose the battle?

Interestingly, while RIL is still grappling with its telecom plan, another Indian conglomerate, the Tata group, has still not been able to make money from its telecom company, Tata Teleservices, after spending a massive Rs 26,000 crore (Rs 260 billion) on the wireless telephony service since its inception.

Like Tata Teleservices, many other telecom players, such as Aircel and Norway’s Telenor, are losing money at their India business, forcing them to hunt for equity partners.

RIL's grand plans in telecom: Will it win or lose the battle?

The entry of Reliance in the telecom sector comes when the big players are straining to increase the single-digit growth in revenues and the flat margins.

The sector will improve structurally only after the share of data revenues rises substantially in overall earnings. As competition slows and companies regain pricing power, players such as Bharti and Idea are expected to perform well.

RIL's grand plans in telecom: Will it win or lose the battle?

Says analyst Rethish Varma of HDFC Securities in an April 10 report, “Some of the silver linings include lower competition due to cancellation of licences by the Supreme Court, positive regulatory policies and improvement in the ecosystem to drive adoption of data services. In fact, telecom companies have started reducing discounts and raising prices.

Higher advertisement and other marketing expenses could partly offset the savings accrued on the back of lower discounts.”

RIL's grand plans in telecom: Will it win or lose the battle?

Analysts say as a large part of the spectrum won by companies such as Vodafone and Bharti in the February auctions was aimed at protecting their current revenues against grabbing new sources of earnings, there will be increased financial pressure on these players, pushing up the voice rates.